There's "Real Money" in Biofuel Tax Credits

On Oct. 1, 2017, a new city law will mandate that the minimum biofuel content in every gallon of residential heating oil must rise from 2 percent to 5 percent. By bumping their biofuel content to 6 percent, co-op and condo boards can get a tax credit equal to one cent per percentage point of biofuel per gallon. Thus, 10,000 gallons of heating oil with a 6 percent biofuel content will net a $600 tax credit; the same shipment with a 20 percent biofuel content will get a $2,000 credit.

“A lot of people are still not aware of the tax credit,” says Paul DeSimone, an account executive with United Metro Energy. “And some people are still a little apprehensive about biofuel. They think it’s snake oil, that it’s going to hurt their machines. It will actually clean your equipment as you use it, and it doesn’t contain sulfur, which contributes to acid rain.”

Most biofuel currently made in the U.S. is derived from soybean oil, and when burned with fossil fuels it reduces climate-altering carbon emissions, according to a 2014 report from the nonprofit New York Public Interest Research Group Fund. A 2016 survey conducted by the National Oilheat Research Alliance found that heating systems did not experience problems from burning oil with a higher biofuel content. And biofuel’s cleansing effect leads to greater efficiency of heating systems, says Mitchell Ingerman, president of Aurora Energy Advisors.

“[This] is a good opportunity for boards and property management companies to revisit their oil price margin,” to determine if they need to renegotiate contracts, Ingerman says.

Any time an environmentally-friendly product comes along, many wonder if it will cost more. According to most fuel distributors and energy advisors, the cost increase for using more biofuel will be negligible – and it comes with the documented benefits to the environment and heating systems, plus the tax credits. Say your building is using a 2 percent biofuel blend (B2), the current minimum, with No. 2 heating oil. From the standpoint of British Thermal Units (or BTUs, the amount of energy needed to raise one pound of water one degree Fahrenheit), increasing the biofuel blend to the mandated 5 percent (B5) will require about 7 percent more oil, according to Ingerman, because biofuel doesn’t burn as hot as No. 2 or No. 4 oil.

Since New York State does not have any biofuel processing plants, much of the biofuel used in the city is delivered from the Midwest, says Chris Donnellan, a sales manager at United Metro Energy. This may change soon. United Metro is taking steps to build a biofuel processing plant in Greenpoint, Brooklyn. In addition to using soybean oil, United is planning to collect used cooking oil from city restaurants, which would be then turned into biofuel.

Although biofuel blends of up to 20 percent are now available, customers have tended to stick to lower percentages, says DeSimone, of United Metro. “It’s hard to change perceptions,” he says. “People automatically think you need to spend money on system upgrades, but that’s not the case. I tell my boards that if they’re apprehensive, they should start at B6, see how the equipment likes it. Then go to B10. Then to B20. I have a building on Central Park West that uses 80,000 gallons of oil a year. At B20, that’s a $16,000 credit. That’s real money.”

And it can put a real dent in a co-op’s or condo’s tax bill, which in New York State is based on the highest of three numbers: net income; shareholders’ equity adjusted to the building’s market value; or a minimum tax based on gross receipts, says CPA Michael Esposito, the audit partner at the accounting firm Kleiman & Weinshank. If the biofuel tax credit exceeds a building’s tax bill – or if the building has no tax liability – it will receive a refund from the state. The money can be put in the operating budget or carried forward to cover any future tax liability.